Despite the government shutdown and the House and Senate’s inability to come to an agreement to resume government operations, most financial regulatory agencies are up and running. The Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) are all functioning normally, due to the fact that they exist and operate outside of congressional appropriations authority. Most of their budgets come from fees that they collect from the companies that they regulate.

Some agencies, however, are not so lucky. The Securities and Exchange Commission (SEC) also continues to operate, although it is in a slightly more precarious situation as it uses money carried over from the previous fiscal year to cover current expenses. If the shutdown continues much longer, it will have to furlough some of its employees.

The Commodities Futures Trading Commission (CFTC), which oversees the futures and options markets in the U.S., soon will have to furlough 96 percent of its 680 employees. Economic data, which flows directly from the Commerce Department, will begin to trickle to a stop as many of the agency’s employees remain at home and unable to work.

According to a new report issued by the Consumer Financial Protection Bureau (CFPB) Oct. 2, the agency still has significant concerns over the effectiveness and implementation of the CARD Act. The report found that the total cost of outstanding credit has declined by two percent between 2008 and 2012, but the CFPB remains concerned about products that credit card companies may offer consumers in order to make up that lost revenue, including credit monitoring and other services.

“Credit cards play a valuable role in the everyday lives of American consumers,” Cordray said. “The CARD Act brought better consumer protections and fairness to the marketplace, but we found there is more work to be done.” The bureau also is concerned about cards that require a consumer to pay an application fee or a portion of the credit balance up front in order to use the card. Additionally, the report stated that the bureau plans to extensively study the risks and benefits of deferred interest products that allow consumers to defer interest payments for a period of time, but that require the interest to be paid if the balance is not completely paid by a certain date.

The Department of Housing and Urban Development (HUD) issued its qualified mortgage – or QM – rule on Sept. 30 that maintains many of the principals outlined in the earlier rule adopted by the Consumer Financial Protection Bureau (CFPB), but with two key exceptions. HUD oversees the Federal Hosuing Administration, which underwrites loans for low-income and first-time home buyers. Thus, the HUD rule would not require that borrowers have a debt-to-income ratio of 43 percent or less, as the CFPB rule requires for the safe harbor designation.

Additionally, the HUD rule would allow for 2.5 percent in fees – or a 135 basis point annual premium and a 175 point upfront fee – to qualify for safe harbor; the CFPB rule only requires 1.5 percent. It is expected that the majority of HUD loans will qualify for QM.

Like the CFPB rule, the HUD version would require that loans not exceed a term of 30 years, require periodic, timely payments and have points and fees that do not add up to more than three percent of the loan. HUD is seeking comment on the proposed rule by Oct. 30.

According to a new report by credit reporting agency Equifax, vehicle loan balances are at their highest level in nearly five years and other credit balances also increased year over year. Bank issued credit card balances have inched upward for two consecutive months and retail-issued cards have increased once again, extending the streak to 24 straight months of balance increases.

The report by Equifax also points out that vehicle and card balances are the only two in the credit category that accompany lowering delinquency rates. Excluding student loans, total debt is down 15 percent from its peak, and delinquency rates outside of home and student loans are down below pre-2008 levels. Additionally, the report showed that consumers are consistently using more debt, but only in a way that they are certain to be able to repay.

The Federal Housing Administration (FHA), the government entity that underwrites many home loans for low-income borrowers and first-time home buyers, clarified a statement regarding their ability to underwrite loans during the government shutdown. "I do want to clear up any confusion about what this means for FHA single-family home borrowers. FHA will be able to endorse single-family loans during the shutdown,” said Carol Galante, the FHA commissioner.

The confusion arose when a line in the FHA’s shutdown operating plan read, "FHA will be unable to endorse any single-family loans and FHA staff will be unavailable to underwrite and approve new loans." The line has been removed. HUD and the FHA note that they have essential staff available to approve and underwrite new loans, although service may be slower than usual.

The U.S. District Court for the Southern District of New York ruled that the state can regulate online lenders that have Native American ties. Judge Richard Sullivan denied a request for a preliminary injunction from the Otoe-Missouria Tribe of Indians, effectively ruling that the state had the authority to regulate the online lender the tribe is associated with because their loans affect New York’s residents. "The undisputed facts demonstrate that the activity the State seeks to regulate is taking place in New York, off of the Tribes' lands," Sullivan wrote in the opinion.

The tribe argued that their constitutionally mandated sovereignty frees them from state level regulation and that the loans provide one of the largest revenue streams for the tribe. Two other tribes from Oklahoma and Michigan made similar arguments earlier this year. N.Y. Department of Financial Services superintendent Benjamin Lawsky sent cease-and-desist letters in August to 35 companies that offer the loans. Simultaneously, he issued 135 notices to banks that allow the lenders to use their automated clearing house system to process payments, stating that they should reevaluate their relationship with the payday companies.

N.Y. has, by far, been the most active in cracking down on payday lending. On Sept. 30, N.Y. Attorney General Eric Schneiderman ordered five firms that collect debts for payday lenders to cease their collection activities and return funds to consumers.

A new ordinance in Canton, Ohio, will require banks to post a bond of $10,000 and pay a registration fee of between $200 and $300 for any foreclosed vacant properties they own. The new ordinance was modeled after a Springfield, Mass., law that was successfully defended in court earlier this year. The new ordinances, like all vacant property upkeep ordinances, are intended to hold financial institutions accountable for maintenance on properties they own due to foreclosure.

The building department in Canton is prepared to enforce the law immediately upon passage according to Mayor William J. Healy II. In nearby Youngstown, Ohio, chief code official Maureen O’Neil said that the town has collected nearly $800,000 off of 80 vacant properties since their ordinance went into effect.

The Canton ordinance would take effect 30 days after a bank files a default notice. Banks wwill be required to register the property, pay the $10,000 bond and name a local property management company to ensure the property is properly taken care of.

Major credit card companies are teaming up to provide consumers with a safer and easier way to purchase items on their mobile device or online. Visa, MasterCard and American Express have joined forces to create a “token” standard that would replace entering an account number to make a purchase. By creating a standard for digital purchases, the card networks create a safer purchasing experience for consumers on-the-go. The companies have not yet decided on the form the standard would take, but are planning to announce a way forward to stakeholders in the coming weeks.

Eaglewood Capital, a company run by a former Lehman Brothers trader, has bundled a number of loans from the peer-to-peer lending site Lending Club and securitized them. Peer-to-peer lending, which allows individual borrowers to interact directly with individual lenders who fund loans, has taken off in recent years, and securitizing the loans may allow more investors to get into the marketplace. The $53 million transaction, which Eaglewood guaranteed in the event of losses of up to $13 million, reportedly was completed with an insurance company, though all sides declined to name which company made the purchase.

Both the purchasing company and Eaglewood stand to make a substantial profit from the performing loans. Lending Club primarily makes loans to people with relatively high credit scores, operating with just over a three percent loss rate.

Scot Seagrave has been named the new President of AFS Acceptance, where he will have overall responsibility for the sales and operations of the company, including loan originations, loan servicing, human resources and other divisions.

Seagrave started with AFS in 2011 as the executive vice president of loan origination. The company cited his effectiveness in that role in their announcement of his new position. "We are well positioned to increase our market share and we will continue to work hard to strengthen our relationships with dealers around the country," Seagrave said. Steve Szapiro will remain the chief executive officer of the company and will maintain overall executive control of AFS. "Scot is a remarkable leader. In the two years that we've worked together, he has demonstrated a rare ability to blend tremendous passion, ingenuity and creativity, with a deep knowledge and understanding of the business," Szapiro said.

AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. AFSA Newsbriefs is free for members. Send an email to newsbriefs@afsamail.org to subscribe.

AFSA's mission is to protect and improve the consumer credit business, maintain a positive public image, and create a legislative climate in which reasonable credit regulation can and will be enacted. The association operates in the public interest, encourages and maintains ethical business practices, supports financial education for consumers of all ages, and provides other assistance in related fields on an as-needed basis.

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